The World Economic Forum, the Swiss-based think tank that runs the annual Davos leadership summit, issued a 176-page report last week titled "The Future of Financial Services – How disruptive innovations are reshaping the way financial services are structured, provisioned and consumed".

With all the hype around "fintech" and "digital disruption" more broadly, the report provides the first consolidated taxonomy for disruptive innovation in financial services, the forum says. It received input from the biggest incumbents (senior executives from Deutsche Bank, Morgan Stanley, HSBC, UBS, Thomson Reuters and MasterCard took part) and the best known global start-ups (including Lending Club, Prosper, Square, Coinbase, Ripple and Simple). All up, more than 300 institutions participated in the research.

Over the 15 months the report took to complete, one of its authors, R Jesse McWaters, an innovation expert at the forum, told the Wall Street Journal that the incumbent banks' position on fintech changed remarkably, from a sense of there being little urgency to understand it, to wanting to know how they might profit from the waves of tech change washing over the sector.

The report is unequivocal that fintech will have a broad impact on a wide range of financial services. It identified six areas that will be most impacted over the coming decades: payments, deposits and lending, financial markets, investment management, capital raising and insurance. Interestingly, given the current attention on digital disruption of big banks, the report found that "while the most imminent effects of disruption will be felt in the banking sector, the greatest impact of disruption is likely to be felt in the insurance sector". (More on that later.)

Many emerging innovations leverage advanced algorithms and computing power to automate activities that were once highly manual, allowing them to offer cheaper, faster, and more scalable alternative products and services, the forum notes. This threat of disintermediation, as emerging innovations streamline or eliminate incumbents' traditional role as intermediaries, should make banks and insurers nervous, because the start-ups are able to offer lower prices and/or higher returns to their customers.

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The World Economic Forum warned traditional players they are most likely to be attacked where the greatest sources of customer friction meet the largest profit pools. It also reinforced the point that digital disruption is not a one-time event from which things will move on. Rather, fintech creates a continuous pressure to innovate.

There is no single play that incumbents will employ in their response to fintech. The report says sometimes aggressive competition with new entrants will be needed, at others providing these same disrupters with infrastructure and access to services. The report observes that innovations are having the greatest impact where they employ business models that are platform-based, data-intensive, and capital-light.

Collaboration will also occur between regulators, incumbents and new entrants to understand how innovation alters risk profiles, the report says.

Daniel Foggo, the chief executive of peer-to-peer lender Ratesetter in Australia, says the global fintech movement "is being led by consumers and that is why is it happening so quickly. Consumers are getting used to using Uber, Airbnb and Netflix – and now they want the same experience in financial services. Whoever can provide that will eventually be the winners."

Foggo, who read the forum report last week as it circulated the fintech community, agrees it is now a permanent part of the financial services competitive landscape. "This is an evolution, not a revolution. It is not necessarily about doing something new, but doing it better and more efficiently."

The forum also sees a future where many things are connected to the internet. The "internet of things" provides an opportunity for financial institutions to access new data sets, including from social media, that enable new ways of understanding customers and markets. The report suggests increasing specialisation will put pressure on traditional end-to-end financial services models to unbundle.

One of the most interesting parts of the report concerns "connected insurance". With the arrival of wearable technology such as the Apple Watch or Fitbit bands, insurers have the chance to personalise insurance and proactively manage clients' risks, which the report predicts will herald widespread risk-based pricing for insurance.

Telematics was first introduced in the mid-2000s, enabling products to use GPS technology and wireless communications allowing car owners to send usage and behaviour data back to insurers to allow a more accurate underwriting of individual risks and individualised pricing.

"Increasing adoption of connected devices in cars, homes and lifestyles presents an opportunity for insurers to expand the use of telematics, that is, the integration of telecommunication and information processing," the report says. Successful insurers of the future are expected to form partnerships with data providers and device manufacturers.

Many insurers remain cautious about the adoption of new technology. Some of their concerns are understandable. It's likely that mostly low-risk customers will sign up for telematics-based insurance with high-risk customers opting out, damaging insurance economics. There will also be inevitable public scrutiny of data collection and what can be used for various forms of insurance.

Australia's big insurers have differing attitudes towards telematics. QBE is an adopter, and says some of its customers have saved up to 30 per cent through its Insurance Box telematics product. But Insurance Australia Group said in February it had no plans to introduce a telematics product because being monitored was not something its customers were comfortable with.

The forum's McWaters told Wired Magazine last week that "insurance has been an extraordinarily stable business for a very long time. There's a recognition from many insurance executives that we talked to that the culture of innovation within their institutions are very weak."

But McWaters also says that the last 15 months of research have shown that successful disrupters had been following "a pretty deliberate and predictable strategy. They were taking a highly targeted, niche solution, and they were aiming those solutions at the intersection of where established companies were making good money, but where the customers were very frustrated."

Insurance seems ripe for the taking, unless the incumbents quickly morph into more of a risk manager for clients, ramping up digital interactions and proactively participating in risk management through their customers' connected devices. The forum says that if insurers start to leverage the individualised data gathered through connected devices to gain a fuller view of customers' identities and lifestyles, this will open up new avenues of business working with retailers and external parties to deliver relevant and financially beneficial offers to customers.

The question for insurers in this areas is the same for banks. While youth are mostly willing to give up personal data to global tech giants like Facebook or Apple, will they agree to their insurer or bank monitoring their movements?

To ensure the answer is yes, marketing and trust-building will remain essential for incumbents. The next challenge is building and maintaining the IT systems that can monitor and make sense of all the data, in real time.